B-163127, MAR. 14, 1968

B-163127, MAR. 14, 1968

HOUSING - LOANS - DEFAULT - LIEN SATISFACTION DECISION TO CERTIFYING OFFICER OF FEDERAL HOUSING ADMINISTRATION ADVISING THAT VOUCHER REPRESENTING LOSS BY CITY OF NEW YORK ON PROPERTY SUBJECT TO FHA AND FEDERAL TAX LIENS MAY NOT BE CERTIFIED FOR PAYMENT. WHERE CITY OF NEW YORK PENDING REMOVAL OF LIENS ON PROPERTY PAID TAX LIEN AND FHA LIEN, AND THEN PROPERTY WAS DAMAGED BY VANDALISM AND FIRE SO THAT SALE HAD TO BE CANCELLED, REQUEST OF CITY FOR REFUND OF AMOUNT PAID TO F.H.A. BECAUSE EXPECTED RETURN FROM FORECLOSURE UNDERTAKING DID NOT MATERIALIZE MAY NOT BE PAID. F.H.A. WAS NOT PARTY TO CITY'S VENTURE NOR CHARGEABLE WITH CONTRIBUTING TO LOSS. THEREFORE THERE IS NO LEGAL OR EQUITABLE BASIS FOR PAYMENT.

TO MR. LESTER H. THOMPSON:

YOUR LETTER OF DECEMBER 15, 1967, REQUESTED OUR OPINION WHETHER, IN THE SITUATION PRESENTED AND RELATED BELOW, YOU MAY CERTIFY FOR PAYMENT A VOUCHER REFUNDING $1,486.47 TO THE CITY OF NEW YORK.

THE CITY OF NEW YORK ON DECEMBER 30, 1963, ACQUIRED BY FORECLOSURE THE REAL PROPERTY DESIGNATED LOT 31, BLOCK 4049, BOROUGH OF BROOKLYN. OCTOBER 6, 1964, THE CITY SOLD THE PROPERTY BY PUBLIC AUCTION FOR THE SUM OF $3,500. THE PURCHASER SUBSEQUENTLY OBJECTED TO THE TITLE AS IT DEVELOPED THE PROPERTY WAS ENCUMBERED BY A FEDERAL TAX LIEN AND A JUDGMENT ASSIGNED TO THE UNITED STATES IN CONNECTION WITH A CLAIM FILED PURSUANT TO TITLE I OF THE NATIONAL HOUSING ACT, AS AMENDED.

IN ANTICIPATION OF THE RECEIPT OF $3,500, THE SALE PRICE, THE CITY NEGOTIATED FOR THE RELEASE OF THE FEDERAL LIENS. IT PAID THE TOTAL AMOUNT OF $1,686.47. THE SUM OF $165.29 WAS PAID TO THE INTERNAL REVENUE SERVICE FOR THE DISCHARGE OF THE TAX LIEN AND $1,521.18 TO THE FEDERAL HOUSING ADMINISTRATION FOR AN ASSIGNMENT DATED OCTOBER 5, 1965, OF THE JUDGMENT.

DURING THE PROLONGED DELAY PENDING THE NEGOTIATION FOR THE REMOVAL OF THE LIENS, THE ENCUMBERED PROPERTY WAS COMPLETELY VANDALIZED, DESPITE SECURITY MEASURES TAKEN TO PROTECT IT, WITH THE RESULT THAT THE BUILDING THEREON WAS REDUCED TO A MERE SHELL, AND AFTER A FIRE HAD TO BE DEMOLISHED. THE CITY OF NEW YORK UPON DEMAND OF THE PURCHASER CANCELLED THE SALE AND RETURNED THE DEPOSIT WHICH IT FELT CONSTRAINED TO DO. THE PROPERTY, NOW A VACANT LOT, WAS AGAIN OFFERED FOR SALE AT PUBLIC AUCTION BY THE CITY ON SEPTEMBER 26, 1967, AND WAS SOLD FOR THE UPSET PRICE OF $200. THE CITY NOW REQUESTS OF THE FEDERAL HOUSING ADMINISTRATION THE RETURN OF $1,486.47, THE SUM "OVER AND ABOVE WHAT IT WOULD NORMALLY PAY FOR THE REMOVAL OF THE LIENS IN QUESTION, BASED UPON THE NEW PURCHASE PRICE OF $200.'

IN EXPLANATION OF THE CITY'S REQUEST YOU STATE IN YOUR LETTER: "* * * THE CITY OF NEW YORK PUTS FORTH THE ARGUMENT THAT IT PAID OVER THE SUM, IT NOW ASKS TO BE REFUNDED ON THE BASIS OF ITS EXPECTATION THAT IT WOULD REALIZE $3,500 FROM THE TRANSACTION; WHEREAS, BY REASON OF SUBSEQUENT CIRCUMSTANCES, IT WILL NOW ONLY REALIZE THE SUM OF $200. IT WOULD APPEAR THAT THE CITY IS BASING ITS ARGUMENT ON THE THEORY OF EQUITABLE MISTAKE, THAT IS TO SAY THAT IN PAYING OVER THE SUM $1,486.47 FOR THE RELEASE OF THE JUDGMENT LIEN HELD BY THIS ADMINISTRATION, IT REASONABLY ANTICIPATED THAT THE ACTUAL CONSIDERATION WOULD BE FORTHCOMING FROM THE PURCHASE PRICE THAT HAD BEEN OFFERED AT THE FIRST FORECLOSURE SALE. "AS THE CITY POINTS OUT, THIS EXPECTATION WAS FRUSTRATED BY THE DELAY NECESSITATED BY THE EFFORTS THAT IT DEEMED NECESSARY TO CONVEY CLEAR TITLE TO THE ORIGINAL PURCHASER.'

THE CITY OF NEW YORK, IN REQUESTING A REFUND OF THE SUM OF $1,486.47, SEEKS RELIEF OF A LOSS INCURRED, HAVING FAILED TO REALIZE AN EXPECTED RETURN FROM THE FORECLOSURE UNDERTAKING. HOWEVER, IT DOES NOT APPEAR THAT THE UNITED STATES, MORE PARTICULARLY THE FEDERAL HOUSING ADMINISTRATION TO WHICH THE REQUEST IS ADDRESSED, WAS A PARTY TO THECITY'S VENTURE; NOR CHARGEABLE WITH CONTRIBUTING TO THE CITY'S LOSS.

ON THE PRESENT RECORD WE PERCEIVE NO LEGAL OR EQUITABLE BASIS FOR THE CITY'S REQUEST. ACCORDINGLY, YOU ARE ADVISED THAT THE SUBMITTED VOUCHER MAY NOT BE CERTIFIED FOR PAYMENT AND WILL BE RETAINED IN OUR OFFICE.